IMPLEMENTING AN AUTOMATED TIME AND

ATTENDANCE SYSTEM TO SAVE 5 % OF REVENUE

ANNUALLY DUE TO PAYROLL PROCESS
INEFFICIENCIES, ERRORS AND FRAUD

Submitted to:

Name, Title
Department/Organization
Address (optional)

Prepared by:

Name, Title
Department/Organization
Address (optional)

Date Submitted

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EXECUTIVE SUMMARY

Companies lose an average of 5 percent of revenue annually due to payroll process

inefficiencies, errors and fraud.

The company was spending a significant amount of money paying employees for time
when they were not working.

A competent cross-functional team was assigned to work on the project. The team found
that the biggest opportunity for improvement occurred during the time-collection and
calculation processes used by managers for the company’s 5,000 hourly employees to
determine how many hours employees worked and thus how much they should be paid.

We formed a cross-functional problem solving team comprised of several departments.

This team used the Six Sigma DMAIC problem solving process to identify opportunities
for improvement. First, we conducted a qualitative process analysis to identify potential
causes for the unwanted expenses through payroll system. Next, we set up a data
collection plan. Here, we conducted an observational study, we were able to identify
several recommendations for our attendance recording system.

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IMPROVEMENT OPPORTUNITY: DEFINE PHASE

Problem Statement/Discussion of the process being examined

Companies lose an average of 5 percent of revenue annually due to payroll process

inefficiencies, errors and fraud. Leaders at Océ Business Services, a provider of
outsourced document process management services, estimated that their company had
an even greater opportunity because of their outsourcing model – employees based on
client premises supporting thousands of individual locations. The company assigned a
Six Sigma team to examine the payroll process with the goal of reducing risk,
increasing accuracy and improving efficiency.

Errors resulting from variations in the payroll process produced an estimated $1

million annually in unwarranted payroll expenses. In other words, the company was
spending a significant amount of money paying employees for time when they were
not working.

Identification of key measures used to evaluate the success of project

 Error rate of manual attendance time recording records with expenses for the
payroll.

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CURRENT STATE OF THE PROCESS: MEASURE PHASE

Current Performance Level

In a survey of 325 managers responsible for submitting time records, the responses
indicated that as many as 30 percent of the sites did not have an effective means of
tracking and reporting employee time. Less than 30 percent of the managers utilized time
clocks at their sites (Figure 1). Results also indicated that 30 percent of the managers
surveyed did not keep physical records of time worked by employees. Only 15 percent of
sites were utilizing I-Times for payroll entry.

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 ANALYSIS AND FINDINGS: THE ANALYZE PHASE

Fifteen percent of the respondents did not deduct time for employees unless they arrived
to work more than 15 minutes late. Eight percent did not deduct any pay, even when
employees arrived more than 15 minutes late. Corporate policy allowed for a seven-
minute grace period. More than 50 percent of the survey respondents used the wrong
grace period for lateness (Figure 2).

Finally, the survey responses indicated that only 52 percent of sites required employees to
clock out at lunchtime. Many state regulations require that employers maintain accurate
records relative to employee lunches and breaks.

The team collected sample data across multiple sites and validated that the following root
causes were primarily responsible for defects produced in the information submitted to
payroll:
 The existence of multiple processes for collecting time data, including time clocks
and handwritten time sheets
 Manual calculation errors for hours worked
To determine the financial cost of the defects produced from the existing processes, the
team conducted a pilot test. The pilot enabled the team to make accurate financial
projections of the benefits of implementing an improved time and attendance system. The

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test showed that there was a 0.5 percent error rate in manual data calculations. According
to the pilot projection, a reduction in the number of defects produced during the time
collection, calculation and reporting processes would result in the reduction of an
estimated $1.2 million in annualized payroll expenses.

RECOMMENDATIONS: THE IMPROVE PHASE

The team investigated various technology options for collecting employee hours worked
that would address the identified root causes and fit the company’s cost constraints. After
an exhaustive search and evaluation against multiple criteria, the team identified an
automated time and attendance system (ATAS).

This system addressed all of the root causes for defects, and provided standardization,
automated time calculations and structured policy compliance. Additional benefits
included quicker payroll processing and better reporting systems.

The ATAS includes browser-based timesheets, browser-based web clocks, biometric

readers and phone-based interactive voice response. It ensures that employees work
within designated limits, maintains detailed time and labor audit trails, properly credits
employees for actual work, and mitigates risks.

The ATAS was rolled out in several phases. This allowed the project team and the
application provider to identify and correct issues as they were discovered. It also
allowed the human resources department to conduct the training needed for all employees
and management. By June 2009, all locations used the new system. With little disruption,
the project team changed the way the entire company was collecting and reporting
employee hours.

The implementation phase of ATAS lasted just under six months. The vendor configured
the application to match the rules that Océ Business Services uses to administer pay. In
addition, the IT department worked with the ATAS provider to ensure that the application
was integrated with Océ Business Services accounting systems.

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MONITORING AND CONTROL: THE CONTROL PHASE

Prior to the change in the time-collection processes, the average number of hours paid
over a two-week period was just over 80 hours per employee. Once the automated time-
collection and calculation system was implemented, the average time worked per
employee dropped to 78.6 hours over two weeks. In other words, by removing manual
processes and time estimations, the team reduced variation and decreased the average
hours paid by 1.5 hours for each payroll cycle (Figure 3).

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SUMMARY/CONCLUSION

Their charter was decreasing the risk of payroll fraud and inaccuracies by reducing or
eliminating opportunities for payroll errors.

After the implementation of ATAS, the company’s payroll expenses decreased as shown
in the control chart (Figure 4), the company realized significant benefits as the program
was implemented across the organization.

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ANSWERS TO EXTRA QUESTIONS

 WHAT WAS THE MOST MPORTANT LESSON LEARNED DURING THEIR

PROCESS?

IF TEAM THINK TO TRAIN MANAGERS FOR BETTER WAYS TO RECORD KEEPING

OF EMPLOYEE ATTENDANCE INSTEAD OF ATAS, THE TEAM MAY BE MISSED THE
LATEST TECHNOLOGY WITH MINIMUM PAPER USING & MINIMIZING OF TIME
CONSUMING FOR MANUAL ATTENDANCE WORKS.

THEN IT MAY NOT THE BEST METHOLOGY FOR THIS SITUATION.

USED CASE STUDY LINK;

https://www.isixsigma.com/implementation/case-studies/case-study-making-accurate-payments/

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